Update: CNBC has reported that the Consumer Financial Protection Bureau has dropped its lawsuit against the leading three banks, coinciding with the White House’s efforts to scale back the consumer rights agency.
A surge in Zelle scams linked to social media contact has prompted JPMorgan Chase to prohibit payments conducted through social media platforms and messaging applications. The bank emphasized that Zelle was designed for transferring money to family, friends, and other trusted contacts, and should not be used for online transactions.
Zelle Scams
Payment apps such as Zelle, Venmo, and Apple Pay Cash gained tremendous popularity during the pandemic and have become a common means for instant cash transfers among friends. However, scammers have swiftly exploited the loosely regulated nature of these services, leaving victims with limited options for recourse against fraud.
Zelle, in particular, has faced criticism from the US Consumer Financial Protection Bureau (CFPB) for its minimal security measures. Consequently, numerous users have fallen victim to scams, resulting in a staggering loss totaling $870 million.
Initially, Zelle distanced itself from responsibility, claiming it was the user’s duty to confirm that they were sending money to the correct recipient and that the banks associated with the app bore no liability. Nevertheless, the CFPB filed a lawsuit against Zelle’s operators and its partner banks, leading to potential legislative actions that prompted a modest policy shift at the end of last year.
The 2,100 financial institutions utilizing Zelle, a peer-to-peer network owned by seven banks including JPMorgan Chase and Bank of America, began refunding transfers on June 30 for customers misled into sending funds to scammers portraying themselves as representatives from government agencies, banks, or existing service providers, said Early Warning Services (EWS), the entity that owns Zelle.
This development suggests that reimbursements will be granted if a scammer impersonates a government body or bank. However, it appears that compensation will only be available for existing customers if the scammer poses as a company. Moreover, individuals may not find relief if deceived by someone pretending to be a family member or friend.
BleepingComputer identified a modification in Chase’s terms and conditions regarding Zelle payments, set to take effect next month.
“To protect you, Chase will not permit you to send Zelle payments that are identified as being initiated from contacts through social media. We will reject these transactions, as Zelle is intended for payments to friends, family, and other trusted recipients you are familiar with, not for transactions with individuals met on social media,” the bank warned.
“We may ask for information from you (for instance, during payment setup or when adding a recipient) regarding your payment purpose, the contact method with your recipient, or other details we find necessary to evaluate whether your payment carries an increased risk of fraud or scam, or is a prohibited or improper transaction.”
While Chase may not always accurately identify sales from social media, it will block those transactions whenever possible.
DMN’s Insight
The standard advice remains unchanged: avoid making payments to anyone unless you were anticipating the transaction, and remain cautious of any urgency claims, such as limited windows for refunds. Refrain from using peer-to-peer payment apps for purchasing goods and services; instead, opt for credit cards, which provide consumer protections.
A comparison conducted in 2018 revealed that Apple Pay Cash provided the most favorable balance of security and privacy among peer-to-peer payment applications.
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